Disagreeing with an Ethics answer.

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panos.kollias

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Here is a question along with it’s ‘correct’ answer.
Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh’s former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers Perry to be very honest and highly competent. Marsh should:
A)
immediately put out a report recommending the stock, but waiting until the official announcement to state his reasons.
B)
wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his.
C)
produce his research report in two days based solely on the official announcement, not taking into consideration the information from Perry.
Your answer: C was incorrect. The correct answer was B)
Reason given:
The research report cannot be released until the official announcement is made, otherwise he will be violating the Standard on prohibition against the use of material nonpublic information. Once it is made public, Marsh can disclose the nature of the conversation without violating that Standard because the information will now be public. However, he should disclose the relationship with Perry or he will be violating the Standard on communications with clients and prospective clients.
—————————————
I’m being skeptic about this one. Is really his feelings towards his friend (he considers him very honest and highly competent), enough to cover the high standards of diligence and reasonable basis?
I understand that every analyst is free to have her/his own opinion on research reports but wouldn’t in this case be more conservative to just base all analysis SOLELY on 1) The official anouncement and 2) The analyst’s OWN perception of the company?
What is your take people?
 
It says somewhere in the readings that an analyst must use all information to make his/her report. Not using a source that Scott believes is “very honest and highely competent” would make me dubious about answer C. It doesn’t say anywhere that Scott is changing his opinion, and while it doesn’t say whether he uses proper research alongside inside information it doesn’t say that he does not.
A hard question that, I would have been stuck for a while…
 
I hope this didnt come from the CFAI texts and I doubt it did.
Basing your opinion because it came from a friend does not sound like Reasonable and Adequate basis to me.
 
I’d be stuck for a while between C and B but I guess going with C would have violated the standard on communication with clients coz even though he would use his own research his opinions might be slightly biased due the relationship and the fact that he received the information from what he beleives is a trustworthy source and therefore it’s safer to disclose the relationship to clients to avoid future accusations.
 
One other aspect - wouldn’t this information constitute MNPI?
 
frgna wrote:
One other aspect - wouldn’t this information constitute MNPI?
Click to expand...
Yes, this is MNPI and this is why A is going to be out of the question.
loves2rockclimb wrote:

The most conservative answer is not always the correct one.
Click to expand...


I definitely agree with this but I am still intrigued by the choice of an analyst to outright base an opinion on the basis of something that is by default subjective - in this case his opinion about his acquaintance’s credibility. This feels flawed in different levels :

1) The acquaintance has all the incentive in the world to misrepresent his company’s results and especially to an analyst that covers the stock.

2) The analyst can be wrong about his assertion about the person.

3) The person might have changed due to internal / external / human circumstances. I just don’t see how something as chaotic as human behaviour can form basis for stock recommendation.

Final point : when something is as vague as this (look at all the different views on the issue), shouldn’t we just go for the conservative choice? (Similarly with the case of accepting travel costs etc)
 
I was thinking it was B…. He’s not making his decision because Perry is his friend but because he believes Perry to be honest/competent, so it can be like talking to an honest CEO or something, we wouldn’t ignore what they say just because we have a history together. And he discloses the relationship simply because it can be a potential conflict of interest (6.a)
But still, I have the feeling this question is Schweser. They have a lot of shady questions with multiple correct answers. I seriously hope CFAI isn’t that way.
 
chibwack wrote:
I was thinking it was B…. He’s not making his decision because Perry is his friend but because he believes Perry to be honest/competent, so it can be like talking to an honest CEO or something, we wouldn’t ignore what they say just because we have a history together. And he discloses the relationship simply because it can be a potential conflict of interest (6.a)
But still, I have the feeling this question is Schweser. They have a lot of shady questions with multiple correct answers. I seriously hope CFAI isn’t that way.
Click to expand...
You know what, I have just started getting into schweser’s ethics and I have to agree with you. It seems like I have no issues with cfai material - I happily got a 39/40 at the EOC’s but occasionally I run into weirdly worded schweser ones. It almost feels like in their effort to make the question more tricky they lose the point. Shortly after posting this one here I saw another that I cant totally agree with.
 
panos.kollias wrote:
chibwack wrote:
I was thinking it was B…. He’s not making his decision because Perry is his friend but because he believes Perry to be honest/competent, so it can be like talking to an honest CEO or something, we wouldn’t ignore what they say just because we have a history together. And he discloses the relationship simply because it can be a potential conflict of interest (6.a)
But still, I have the feeling this question is Schweser. They have a lot of shady questions with multiple correct answers. I seriously hope CFAI isn’t that way.
Click to expand...
Scswer questions are twisted a lot
I get 80% in cfa book questions but 65% in scswer q bank in ethics
You know what, I have just started getting into schweser’s ethics and I have to agree with you. It seems like I have no issues with cfai material - I happily got a 39/40 at the EOC’s but occasionally I run into weirdly worded schweser ones. It almost feels like in their effort to make the question more tricky they lose the point. Shortly after posting this one here I saw another that I cant totally agree with.
Click to expand...
 
Having passed lvl 1 in June after doing a stupidly large number of ethics questions it really does just come with practice. Things like “quit your job” seems extreme but after a while of doing the q’s you’ll get to know what the correct answer will likely be before you’ve even looked through the options, as the same thought process will come up time and time again.
In this case the information would be MNPI pre-release, however after the information has been released he is free to state that he has had personal reassurances. Believe this falls under mosiac theory which is somewhere in ethics, but haven’t looked at anything CFA in about 6 months, so don’t quote me!
 
panos.kollias wrote:
Here is a question along with it’s ‘correct’ answer.
Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh’s former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers Perry to be very honest and highly competent. Marsh should:
A)
immediately put out a report recommending the stock, but waiting until the official announcement to state his reasons.
B)
wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his.
C)
produce his research report in two days based solely on the official announcement, not taking into consideration the information from Perry.
Your answer: C was incorrect. The correct answer was B)
Reason given:
The research report cannot be released until the official announcement is made, otherwise he will be violating the Standard on prohibition against the use of material nonpublic information. Once it is made public, Marsh can disclose the nature of the conversation without violating that Standard because the information will now be public. However, he should disclose the relationship with Perry or he will be violating the Standard on communications with clients and prospective clients.
—————————————
I’m being skeptic about this one. Is really his feelings towards his friend (he considers him very honest and highly competent), enough to cover the high standards of diligence and reasonable basis?
I understand that every analyst is free to have her/his own opinion on research reports but wouldn’t in this case be more conservative to just base all analysis SOLELY on 1) The official anouncement and 2) The analyst’s OWN perception of the company?
What is your take people?
Click to expand...
The bolded statement fails. Therefore, I would choose B.
 
EddieChen wrote:
panos.kollias wrote:
Here is a question along with it’s ‘correct’ answer.
Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh’s former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers Perry to be very honest and highly competent. Marsh should:
A)
immediately put out a report recommending the stock, but waiting until the official announcement to state his reasons.
B)
wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his.
C)
produce his research report in two days based solely on the official announcement, not taking into consideration the information from Perry.
Your answer: C was incorrect. The correct answer was B)
Reason given:
The research report cannot be released until the official announcement is made, otherwise he will be violating the Standard on prohibition against the use of material nonpublic information. Once it is made public, Marsh can disclose the nature of the conversation without violating that Standard because the information will now be public. However, he should disclose the relationship with Perry or he will be violating the Standard on communications with clients and prospective clients.
—————————————
I’m being skeptic about this one. Is really his feelings towards his friend (he considers him very honest and highly competent), enough to cover the high standards of diligence and reasonable basis?
I understand that every analyst is free to have her/his own opinion on research reports but wouldn’t in this case be more conservative to just base all analysis SOLELY on 1) The official anouncement and 2) The analyst’s OWN perception of the company?
What is your take people?
Click to expand...
The bolded statement fails. Therefore, I would choose B.
Click to expand...
Do you mean C?..
 
Schweser’s ethics question sample is no where near compared to CFA exams in terms of understanding the question. Schweser style of writing and statements are hard to read and you will realise as you go on further with level II and level III especially when there is he says she says.
CFA exams i always find to be easier than schweser sample exam cause is clearer, you know what CFA wants and straight forward if you know the material well enough.
The way I see it this is the level of difficulty starting from the hardest to easier
Schweser’s sample exams>CFA’s exams> CFA’s end chapter question.
 
panos.kollias wrote:
EddieChen wrote:
panos.kollias wrote:
Here is a question along with it’s ‘correct’ answer.
Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh’s former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers Perry to be very honest and highly competent. Marsh should:
A)
immediately put out a report recommending the stock, but waiting until the official announcement to state his reasons.
B)
wait until the public announcement is made, then release a report explaining that he believes the company will make the release date, disclosing that one of the reasons for his opinion is Perry is a friend of his.
C)
produce his research report in two days based solely on the official announcement, not taking into consideration the information from Perry.
Your answer: C was incorrect. The correct answer was B)
Reason given:
The research report cannot be released until the official announcement is made, otherwise he will be violating the Standard on prohibition against the use of material nonpublic information. Once it is made public, Marsh can disclose the nature of the conversation without violating that Standard because the information will now be public. However, he should disclose the relationship with Perry or he will be violating the Standard on communications with clients and prospective clients.
—————————————
I’m being skeptic about this one. Is really his feelings towards his friend (he considers him very honest and highly competent), enough to cover the high standards of diligence and reasonable basis?
I understand that every analyst is free to have her/his own opinion on research reports but wouldn’t in this case be more conservative to just base all analysis SOLELY on 1) The official anouncement and 2) The analyst’s OWN perception of the company?
What is your take people?
Click to expand...
The bolded statement fails. Therefore, I would choose B.
Click to expand...
Do you mean C?..
Click to expand...
Sorry, my bad. I mean C.
 
So good chance of scoring around 65% for ethics. No need to worry as outa 36 atleastb 18 simple q shd come
 
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